Valuations and Dynamics of Negotiations

Rodney L. White Center for Financial Research Working Paper No. 21-99

29 Pages Posted: 12 Aug 2004

See all articles by Armando R. Gomes

Armando R. Gomes

Washington University in St. Louis - John M. Olin Business School; Washington University in Saint Louis - John M. Olin Business School

Date Written: July 2004

Abstract

This paper analyzes three-party negotiations in the presence of externalities, deriving a close form solution for the stationary subgame perfect Nash equilibrium of a standard non-cooperative bargaining model. Players' values are monotonically increasing (or decreasing) in the amount of negative (or positive) externalities that they impose on others. Moreover, players' values are continuous and piecewise linear on the worth of bilateral coalitions, and are inextricably related to their negotiation strategies: the equilibrium value is the Nash bargaining solution when no bilateral coalitions form; the Shapley value when all bilateral coalitions form; or the nucleolus, when either one bilateral coalition among `natural partners' or two bilateral coalitions including a `pivotal player' form.

Keywords: Coalitional bargaining, externalities, value, negotiations.

JEL Classification: C71, C72, C78, D62.

Suggested Citation

Gomes, Armando R. and Gomes, Armando R., Valuations and Dynamics of Negotiations (July 2004). Rodney L. White Center for Financial Research Working Paper No. 21-99, Available at SSRN: https://ssrn.com/abstract=572625 or http://dx.doi.org/10.2139/ssrn.572625

Armando R. Gomes (Contact Author)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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